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Business News/ Companies / News/  RBI rejigs banks’ investment categories
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RBI rejigs banks’ investment categories

RBI revises guidelines on categorizing bank investments, removes 90-day holding period for securities under Held For Trading category.

Reserve Bank of India RBI building,sansad marg.Premium
Reserve Bank of India RBI building,sansad marg.

Mumbai: The Reserve Bank of India revised its guidelines on categorizing the investments by banks, to align them with global standards.

The change in norms follow an RBI discussion paper issued in January 2022. According to a statement on Tuesday, RBI has removed the 90-day ceiling on holding period of securities under the Held For Trading (HFT) category.

According to bankers, this move will result in banks classifying illiquid bonds and state development loans under HFT but this was not the case previously as they were not sure if they could sell these securities within 90 days of acquiring.

Similarly, RBI removed the ceiling on the held-to-maturity (HTM) in lenders’ investment portfolios.

At present, banks are allowed to set aside more than 25% of total investments under HTM, provided the investment in government securities to meet the statutory liquidity ratio (SLR) requirement, is capped at 18%.

The revised guidelines will be effective from 1 April 2024. “The directions are expected to enhance the quality of the banks’ financial reporting, improve disclosures, provide a fillip to corporate bond market, facilitate the use of derivatives for hedging, besides strengthening the overall risk management framework of banks," said RBI.

RBI also introduced a new category of investment, fair value through profit and loss (FVTPL) account. The existing HFT category will now be part of FVTPL category, according to the revised guidelines.

The investment portfolio of banks will now be divided into three categories: FVTPL, HTM and available for sale (AFS).

HFT category was for debt securities purchased by banks with the intent of selling them within a short period. Under FVTPL, debt instruments are measured at fair value through a profit and loss account.

RBI has also barred instruments with loss-absorbing features, such as those qualifying for additional tier 1 or tier 2 capital regulations, equity and preference shares from being held under AFS or HTM categories.

Banks will have to hold the investments in their FVTPL books which will require more regular accounting work.

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Gopika Gopakumar
Gopika Gopakumar has worked for over 15 years as a banking journalist across print and television media. Her expertise lies in breaking big corporate stories and producing news based TV shows. She was part of the 2013 IMF Journalism Fellowship Program where she covered the Annual & Spring meetings of the International Monetary Fund in Washington D.C. She started her career with CNBC-TV18, where she also produced a news feature show called Indianomics and an award winning show on business stories from South India called Up South. She joined Mint in 2016.
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Published: 13 Sep 2023, 12:19 AM IST
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